Taxation of Business Entities Practice Questions
Course Introduction
This course provides an in-depth exploration of the federal income tax rules and principles applicable to various business entities, including corporations, partnerships, S corporations, and limited liability companies. Students will examine the tax implications of entity formation, operation, distributions, mergers, and liquidations, with particular emphasis on the differences between entity types. Through case studies and examples, the course emphasizes tax planning strategies, compliance requirements, and the impact of taxation on business decision-making, equipping students with practical knowledge to navigate the complexities of business taxation in a dynamic legal environment.
Recommended Textbook
South Western Federal Taxation 2011 Comprehensive 34th Edition by William H. Hoffman
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) Jason's business warehouse is destroyed by fire.As the insurance proceeds exceed the basis of the property,a gain results.If Jason shortly reinvests the proceeds in a new warehouse,no gain is recognized due to the application of the wherewithal to pay concept.
A)True
B)False
Answer: True
Q2) A calendar year taxpayer files his 2009 Federal income tax return on March 3,2010.The return reflects an overpayment of $5,200,and the taxpayer requests a refund of this amount.The refund is paid on June 18,2010.The refund must include interest.
A)True
B)False Answer: True
Q3) For Federal income tax purposes,there never has been a general amnesty period. A)True
B)False
Answer: True
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Which item may not be cited as a precedent?
A)Regulations.
B)Temporary Regulations.
C)Technical Advice Memoranda.
D)U.S.District Court decision.
E)None of the above.
Answer: C
Q2) The "defendant" refers to the party against whom a suit is brought.
A)True
B)False
Answer: True
Q3) A Revenue Procedure is an administrative source of Federal tax law.
A)True
B)False
Answer: True
Q4) How can congressional committee reports be used by a tax researcher?
Answer: Congressional committee reports often explain the provisions of proposed legislation and are a valuable source for ascertaining the intent of Congress.The intent of Congress is the key to interpreting new legislation by taxpayers,especially before Regulations are published.
Page 4
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Chapter 3: Computing the Tax
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Q1) A taxpayer who itemizes his deductions from AGI can claim the property taxes on his personal residence as a deduction.
A)True
B)False
Answer: True
Q2) Surviving spouse filing status begins in the year in which the deceased spouse died.
A)True
B)False
Answer: False
Q3) Even if the individual does not spend funds that have been received from another source (e.g. ,interest on municipal bonds),the unexpended amounts are considered for purposes of the support test.
A)True
B)False
Answer: False
Q4) In some cases,the tax on long-term capital gains can be as low as 0%.
A)True
B)False Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) In December 2010,Mary collected the December 2010 and January 2011 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2010 for the 2011 rent should be included in her 2011 gross income.
A)True
B)False
Q2) Ralph purchased his first Series EE bond during the year.He paid $709 for a 10-year bond with a $1,000 maturity value.The yield to maturity on the bonds was 3.5%.Ralph is not required to recognize the $291 ($1,000 - $709)original issue discount until the bond matures.
A)True
B)False
Q3) In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.
A)True
B)False
Q4) Sarah,a widow,is retired and receives $24,000 interest income and dividends and $8,000 in Social Security benefits.Sarah is considering selling a stock at a $6,000 gain.What will be the increase in Sarah's gross income as a result of the sale of the stock?
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Chapter 5: Gross Income: Exclusions
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Q1) Martha participated in a qualified tuition program for the benefit of her son.She invested $5,000 in the fund.Four years later her son withdrew $7,500,the entire balance in the program,to pay his college tuition.
A)Martha must include the $2,500 ($7,500 - $5,000)in her gross income when the funds are used to pay the tuition.
B)Martha must include the portion of the $2,500 accumulated each year in her gross income (i.e. ,interest).
C)Martha's son must include the $2,500 ($7,500 - $5,000)in his gross income when the funds are used to pay the tuition.
D)Martha's son must include the portion of the $2,500 accumulated each year in his gross income (i.e. ,interest).
E)None of the above.
Q2) Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and their family members.Sarah can exclude from her gross income the premiums for herself and her family members.
A)True
B)False
Q3) What Federal income tax benefits are provided for college students?
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Chapter 6: Deductions and Losses: in General
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Q1) Which of the following are deductions for AGI?
A)Mortgage interest on a personal residence.
B)Property taxes on a personal residence.
C)Mortgage interest on a building used in a business.
D)Fines and penalties incurred in a trade or business.
E)None of the above.
Q2) A political contribution to the Democratic Party or the Republican Party is not deductible,but a contribution to the Presidential Election Campaign Fund is deductible.
A)True
B)False
Q3) The cost of legal advice associated with the preparation of an individual's Federal income tax return is not deductible because it is a personal expense.
A)True
B)False
Q4) Expenses incurred in a trade or business are deductible from AGI. A)True
B)False
Q5) Are all personal expenses disallowed as deductions?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) Jed is an electrician.Jed and his wife are cash basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill,claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.Jed was never able to collect the judgement nor the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?
A)$0.
B)$2,000.
C)$3,000.
D)$5,000.
E)None of the above.
Q2) A theft loss of investment property is a miscellaneous itemized deduction subject to the 2%-of-AGI floor.
A)True
B)False
Q3) Expenses in connection with the acquisition of land are not research and experimental expenditures.
A)True
B)False
Page 9
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Chapter 8: Depreciation,cost Recovery,amortization,and Depletion
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Sample Questions
Q1) On May 15,2010,Brent purchased new farm equipment for $80,000.Brent used the equipment in connection with his farming business.Brent does not elect to expense assets under § 179.If Congress reenacts additional first-year depreciation for 2010,Brent does elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2010.
A)$8,000.
B)$12,000.
C)$16,000.
D)$20,000.
E)None of the above.
Q2) The statutory dollar cost recovery limits under § 280F apply to all passenger automobiles.
A)True
B)False
Q3) Under the MACRS straight-line election for personality,the mid-quarter convention is not applicable.
A)True
B)False
Q4) Discuss the difference between the half-year convention and the mid-quarter convention.
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year.
A)True
B)False
Q2) Some transactions can qualify as either business entertainment or as a business gift.In such cases,the business entertainment classification usually predominates.However,in one situation a choice between the two is allowed.Explain.
Q3) Which of the following expenses,if any,qualify as deductible?
A)Contributions to a Coverdell Education Savings Account (CESA).
B)Contributions to a qualified tuition program (§ 529 plan).
C)Job hunting expense of FBI agent who applies for the job of city manager of Beaumont (TX).
D)Contribution to H.R.10 plan.
E)None of the above.
Q4) An employed taxpayer can avoid the cutback adjustment on entertainment expenses by claiming the standard deduction.
A)True
B)False
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized Deductions
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Sample Questions
Q1) In Shelby County,the real property tax year is the calendar year.The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year,2010.The tax is payable on June 1,2010.On April 30,2010,Julio sells his house to Anita for $230,000.On June 1,2010,Anita pays the entire real estate tax of $7,300 for the year ending December 31,2010.How much of the property taxes may Julio deduct?
A)$0.
B)$2,380.
C)$2,400.
D)$4,920
E)None of the above.
Q2) Dawn sold her personal residence to Kevin in 2010 for $300,000.Before the sale,Dawn paid the real estate taxes of $8,030 for the calendar year.For income tax purposes,the deduction is apportioned as follows: $4,400 to Dawn and $3,630 to Kevin.
a.What is Kevin's basis in the residence?
b.What is Dawn's amount realized for the sale of the residence?
c.How much of the real estate taxes can Kevin deduct?
d.How much of the real estate taxes can Dawn deduct?
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Jon owns an apartment building in which he is a material participant and a computer consulting business.Of the 2,000 hours he spends on these activities during the year,55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.
A)The computer consulting business is a passive activity but the apartment building is not.
B)The apartment building is a passive activity but the computer consulting business is not.
C)Both the apartment building and the computer consulting business are passive activities.
D)Neither the apartment building nor the computer consulting business is a passive activity.
E)None of the above.
Q2) Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.
Q3) When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?
Q4) What special passive loss treatment is available to real estate activities?
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Page 13
Chapter 12: Tax Credits and Payments
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Q1) A taxpayer's earned income credit is dependent on the number of his or her qualifying children.
A)True
B)False
Q2) An employer's tax deduction for wages is not affected by the work opportunity tax credit.
A)True
B)False
Q3) A small employer incurs $1,800 for consulting fees related to establishing a qualified retirement plan for its 85 employees.As a result,the employer may claim the credit for small employer pension plan startup costs for $900.
A)True
B)False
Q4) An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.
A)True
B)False
Q5) Discuss the treatment of unused general business credits.
Q6) Describe the withholding requirements applicable to employers.
Page 14
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Chapter 13: Part 1--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) If Wal-Mart stock increases in value during the tax year by $4,500,the amount realized is a positive $4,500.
A)True
B)False
Q2) Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage,she can use the § 121 exclusion.
A)True
B)False
Q3) Nontaxable stock dividends result in:
A)A higher cost per share for all shares than before the stock dividend.
B)A lower cost per share for all shares than before the stock dividend.
C)An increase in the total cost of the old and new stock combined.
D)A decrease in the total cost of the old and new stock combined.
E)None of the above.
Q4) The basis of boot received in a like-kind exchange is its fair market value.
A)True
B)False
Page 15
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Chapter 13: Part 2--Property
Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) What effect do the assumption of liabilities have on a § 1031 like-kind exchange?
Q2) Nigel purchased a blending machine for $125,000 for use in his business.As to the machine,he has deducted MACRS cost recovery of $31,024,maintenance costs of $5,200,and repair costs of $4,000.Calculate Nigel's adjusted basis for the machine.
Q3) What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?
Q4) Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.
Q5) Evelyn's office building is destroyed by fire on July 12,2010.The adjusted basis is $272,000.She receives insurance proceeds of $300,000 on August 31,2010.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $15,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion)postponement treatment.
Q6) For gifts made after 1976,when will part of the gift tax paid by the donor be added to the donee's basis?
Q7) Can related parties take advantage of the like-kind exchange provisions?
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Chapter 14: Property Transactions: Capital Gains and Losses,1231,and
Recapure Provisions
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Q1) On January 18,2009,Martha purchased 200 shares of Blue Corporation stock for $2,000.On November 11,2010,she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300.On February 10,2011,Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2009.On that date,Blue Corporation stock had a market price of $4 per share.What is Martha's recognized gain or loss and its character in 2010? In 2011?
Q2) A business taxpayer trades in a used fully depreciated machine on a replacement machine.Because the machine traded in was worth more than the replacement machine,the taxpayer received cash in the transaction.Assume the used machine originally cost $100,000,was worth $32,000 when it was traded in,and the replacement machine was worth $20,000.Consequently,the taxpayer received $12,000 cash in the transaction.Is there recognized gain in this transaction and,if so,what type of gain?
Q3) An individual taxpayer with 2009 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2010. A)True B)False
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Chapter 15: Alternative Minimum Tax
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Q1) What is the relationship between the regular income tax liability and the tentative AMT?
Q2) If the tentative AMT is less than the regular income tax,the AMT will be zero.
A)True
B)False
Q3) Agnes is able to reduce her regular income tax liability from $40,000 to $36,000 as the result of the alternative tax on net capital gain.Agnes' tentative AMT is $50,000.
A)Agnes' tax liability is reduced by $4,000 as the result of the alternative tax calculation on net capital gain.
B)Agnes' AMT is increased by $4,000 as the result of the alternative tax calculation on net capital gain.
C)Agnes' tax liability is $46,000.
D)Agnes' tax liability is $54,000.
E)None of the above.
Q4) The C corporation AMT rate is higher than the individual AMT rates.
A)True
B)False
Q5) Discuss the tax year in which an AMT adjustment is first required for an ISO.
Q6) For the ACE adjustment,discuss the relationship between ACE and unadjusted AMTI.
Page 18
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Chapter 16: Accounting Periods and Methods
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Q1) Color,Inc. ,is an accrual basis taxpayer.In December 2011,the company received from a customer a $500 claim for defective merchandise.Color paid the customer in January 2012.Also,in December 2011,the company received a bill of $800 for office supplies that had been purchased and used in November 2011.The bill was not paid until January 2012.In January 2012,the company received a claim for $600 for defective merchandise purchased in 2011.Color paid the customer the $600 in February 2012.Assuming Color uses the recurring item exception to economic performance,the company's deductions for 2011 as a result of the above are:
A)$500.
B)$600.
C)$800.
D)$1,300.
E)$1,900.
Q2) Which of the following statements regarding a 52-53 week tax year is not correct?
A)The year-end must be the same day of the week in all years.
B)Some tax years will include more than 366 calendar days.
C)Whether the particular tax year includes 52 weeks or 53 weeks is not elective.
D)All of the above are correct.
E)None of the above is correct.
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Page 19
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) A corporation that is not required to file Schedule M-3 is permitted to file a Schedule M-3 voluntarily.
A)True
B)False
Q2) Elk,a C corporation,has $500,000 operating income and $350,000 operating expenses during the year.In addition,Elk has a $20,000 long-term capital gain and a $52,000 short-term capital loss.Elk's taxable income is:
A)$98,000.
B)$118,000.
C)$150,000.
D)$170,000.
E)None of the above.
Q3) Jay is the sole shareholder of Brown Corporation,which is an S corporation.During the current year,Brown earned net operating income of $80,000 and had a long-term capital loss of $3,000.Also,Jay withdrew $40,000 from the corporation.Jay must report $80,000 of Brown Corporation income and may deduct the $3,000 loss on his Federal individual income tax return.
A)True
B)False
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) Similar to like-kind exchanges,the receipt of "boot" under § 351 can cause gain to be recognized.
A)True
B)False
Q2) Trudy forms Oak Corporation by transferring land with a basis of $150,000 (fair market value of $800,000),subject to a mortgage of $450,000.Two weeks prior to incorporating Oak,Trudy borrows $10,000 for personal purposes and gives the lender a second mortgage on the land.Oak Corporation issues stock worth $340,000 to Trudy and assumes the two mortgages on the land.What are the tax consequences to Trudy and to Oak Corporation?
Q3) Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel.In the first year of operation,Camel has net taxable income of $70,000.If Camel distributes $50,000 to Adam:
A)Adam has taxable income of $50,000.
B)Camel Corporation has a tax deduction of $50,000.
C)Adam has no taxable income from the distribution.
D)Camel Corporation reduces its basis in the land to $150,000.
E)None of the above.
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Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) To determine E & P,some (but not all)previously excluded income items are added back to taxable income.
A)True
B)False
Q2) Mallard Corporation is a calendar year taxpayer formed in 20019- Mallard's E & P for each of the past 5 years is listed below. 2009 $140,000
2008 $200,000
2007 $195,000
2006 $340,000
2005 $ 80,000
Mallard Corporation made the following distributions in the previous 5 years.
2008 Land (basis of $350,000,fair market value of $400,000)
2005 $100,000 cash
Mallard's accumulated E & P as of January 1,2010 is:
A)$455,000.
B)$475,000.
C)$505,000.
D)$525,000.
E)None of the above.
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Chapter 20: Distributions in Complete Liquidation and an
Overview of Reorganizations
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Q1) If the target corporation in a reorganization has a deficit in earnings and profits,any gains recognized by the shareholders are treated as stock redemptions and not as dividends.
A)True
B)False
Q2) The stock of Brown Corporation (E & P of $680,000)is owned as follows: 95% by Black Corporation (basis of $380,000),and 5% by Susanna (basis of $20,000).Both shareholders purchased their shares in Brown five years ago.In the current year,Brown Corporation liquidates and distributes land (fair market value of $950,000,basis of $550,000)to Black Corporation,and securities (fair market value of $50,000,basis of $35,000)to Susanna.Which of the following statements is incorrect with respect to the tax consequences resulting from these distributions?
A)Susanna recognizes a $30,000 gain and has a $35,000 basis in the securities.
B)Brown recognizes no gain on the distribution of the land.
C)Black recognizes no gain and has a $550,000 basis in the land.
D)Brown recognizes a $15,000 gain on the distribution of the securities.
E)None of the above.
Q3) Compare the sale of a corporation's assets with a sale of its stock in terms of problems to the seller.
Page 23
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Chapter 21: Partnerships
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Q1) Tim and Janet are equal partners in the TJ Partnership.Partnership income for the year is $20,000.Tim needs cash in order to pay tax on his share of the partnership income,but Janet wants to leave the cash in the partnership for expansion.If the partners agree,it is acceptable for TJ to distribute $5,000 to Tim,and no cash or other property to Janet.
A)True
B)False
Q2) Which of the following is a correct definition of a concept related to partnership taxation?
A)A partner's capital sharing ratio is defined as the percent of partnership profits that will be allocated to the partner.
B)The partnership's inside basis is defined as the sum of each partner's capital account balance.
C)The entity concept treats partners and partnerships as separate units and gives the partnership its own tax "personality."
D)A special allocation is defined as an amount that could differently affect the tax liabilities of two or more partners.
E)None of these statements is correct.
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Page 24
Chapter 22: S Corporations
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Q1) How large must total assets on Schedule L be at the end of the year for an S corporation to be required to file Schedule M-3?
A)$4 million.
B)$5 million.
C)$7.5 million.
D)$10 million.
E)Not required to file.
Q2) An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.
A)True
B)False
Q3) An S corporation may be subject to the following tax.
A)Built-in gains tax.
B)Accumulated earnings tax.
C)Personal holding company tax.
D)Alternative minimum tax.
E)None of the above is paid by S corporations.
Q4) Explain how the domestic production activities deduction is used for an S corporation.
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Chapter 23: Exempt Entities
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Q1) Which of the following are organizations exempt under § 501(c)(3)?
A)Girl Scouts of America.
B)Washington and Lee University.
C)League of Women Voters.
D)Only a.and b.are § 501(c)(3)organizations.
E)All of the above are § 501(c)(3)organizations.
Q2) Which of the following is not an example of an exempt organization?
A)Religious,charitable,or educational organization.
B)Voluntary employees' beneficiary association.
C)Labor,agricultural,or horticultural organization.
D)Stock exchange.
E)All of the above can be exempt from tax.
Q3) Identify the components of the tax model for unrelated business taxable income.
Q4) Links,Inc. ,an exempt organization whose mission is to aid marriages threatened by golf,contributes $100,000 to Couples,Inc. ,an exempt organization which provides counseling to dysfunctional marriages.Links,Inc. ,has net UBTI (excluding any modifications associated with charitable contributions)of $800,000.Assuming that the $100,000 contribution has been deducted in calculating net UBTI,determine the amount of any further adjustment in calculating UBTI.
Q5) Define average acquisition indebtedness with respect to debt-financed property.
Page 26
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Chapter 24: Multistate Corporate Taxation
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Q1) A local business wants your help in making a decision about a large capital investment.The entity has narrowed down the choice to four different locations,based on non-tax factors.How can you help them choose among the four finalists,concentrating on tax issues?
Q2) Typically exempt from the sales/use tax base is the purchase of inventory from a competitor who is closing down a long-lived business.
A)True B)False
Q3) A typical state taxable income addition modification is the Federal income tax expense.
A)True B)False
Q4) Typically,a sales tax is applied to a ____________________ sale of tangible personal property.
Q5) A few states recognize an entity's S corporation status,such that taxable income flows through directly to shareholders,but they also assess a state-level tax on the entity.
A)True B)False
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Chapter 25: Taxation of International Transactions
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Sample Questions
Q1) Which of the following transactions,if entered into by an NRA,is not subject to U.S.taxation?
A)Sale of stock of a foreign corporation whose only asset is a U.S.building.
B)Sale of a commercial building located in Houston,Texas,and owned directly by the NRA.
C)Sale of stock of a domestic corporation whose only asset is undeveloped U.S.real estate.
D)Sale of partnership interest.Partnership's assets are predominantly U.S.real estate.
Q2) Which of the following determinations does not require knowing the amounts of one's U.S.- versus foreign-source income?
A)Calculation of U.S.withholding tax on the FDAP income of foreign persons.
B)Calculation of a foreign person's income effectively connected with carrying on a U.S.trade or business.
C)Calculation of the § 911 exclusion.
D)Calculation of a U.S.person's total taxable income.
Q3) Discuss the policy reasons for the § 367 cross-border transfer rules.Provide two examples of transactions to which § 367 would apply.
Q4) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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Q1) If the taxpayer comes to the IRS's office to review a tax return,the review is called a(n)____________________ audit.
Q2) Maureen,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:
A)$17,500.
B)$14,000.
C)$3,500.
D)$0.
Q3) The AICPA's Statements on Standards for Tax Services are advisory,not mandatory,on its members.
A)True
B)False
Q4) IRS letter rulings seldom are revised or revoked.
A)True
B)False
Q5) After the completion of an audit,the taxpayer has ____________________ days to petition the Tax Court to rule in its favor.
Q6) How do rulings issued by the IRS benefit both the taxpayer and the IRS?
Page 29
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Chapter 27: The Federal Gift and Estate Taxes
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Q1) A Federal gift tax only can be imposed on the donor.
A)True
B)False
Q2) Concerning the formula for the Federal estate tax:
A)The tax base results after any post-1976 taxable gifts are added to the taxable estate.
B)The taxable estate is determined with reduction for any state death taxes paid.
C)Any income tax owed by the decedent can be deducted in arriving at the taxable estate.
D)Some unified transfer tax credit is available even if it has been fully utilized for lifetime gifts.
E)All of the above.
Q3) In a § 2503(c)trust for minors,the trustee can be given the power to accumulate income without the gift violating the future interest rule.
A)True
B)False
Q4) In what manner does the tax law favor contributions to qualified tuition plans under § 529?
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) The Roz Trust has distributable net income (DNI)for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument,the trustee must distribute $80,000 to Roger and $80,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $20,000 to Roger and $20,000 to Sally.How much gross income from the trust must Roger recognize?
A)$100,000.
B)$80,000.
C)$50,000.
D)$20,000.
Q2) A living trust is a _________________________ entity that is used to avoid probate upon the death of the grantor.
Q3) Describe how an estate or trust treats "income in respect of a decedent."
Q4) Harry,the sole income beneficiary,received a $40,000 distribution from the Lucy Trust,in a year when the trust's distributable net income was $50,000.Harry's AGI can increase by as much as $50,000.
A)True
B)False
Q5) The Form 1041 of a calendar-year trust is due on ____________________ 15.
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